Regional airline capacity, tourism demand and housing prices: A case study of New Zealand

Tourism is one of the most important economic activities in New Zealand as tourists commonly travel by air to the various regions of this geographically isolated archipelago. This paper aims to investigate: (i) how regional tourism demand and airline capacity affect each other; and (ii) how both affect the housing prices in New Zealand's smaller regions. The paper empirically examines these inter-relationships between regional tourism demand and air transport, and their joint effects on the housing prices by constructing a three-stage least squares (3SLS) structural model employing a panel dataset of New Zealand's six smaller airports and regions from January 2008 to December 2014. Empirical results showed that increased regional tourism activity raises airline capacity and vice versa. Importantly, domestic airline capacity has a statistically significant impact on regional housing prices but not regional tourist demand (with the exception of Queenstown as a major and popular tourist centre). Policy implications of the key findings for regional tourism and air transport developments are discussed.